HP Has Another Solid Quarter in Q2

Thursday, May 18, 2006

Press release from the issuing company

PALO ALTO, Calif., May 16, 2006 - HP today announced financial results for its second fiscal quarter ended April 30, 2006, with net revenue of $22.6 billion, representing growth of 5% year-over-year, or 8% when adjusted for the effects of currency. GAAP operating profit was $1.7 billion and GAAP diluted earnings per share (EPS) was $0.51 per share, up from $0.33 in the prior year period.
Non-GAAP operating profit was $1.8 billion, with non-GAAP diluted EPS of $0.54, up from $0.37 in the prior year period. Non-GAAP financial information excludes $97 million of adjustments on an after-tax basis, or $0.03 per diluted share, related primarily to amortization of purchased intangibles. GAAP and non-GAAP financial information include stock-based compensation expense in the current financial period only.
"HP delivered another solid quarter," said Mark Hurd, HP chief executive officer and president. "We grew revenue, expanded margins and generated record cash flow. At the same time, we continued to remain focused on executing our strategy and investing in the company's long-term success."
Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.
During the quarter, on a year-over-year basis, revenue in the Americas grew 10% to $9.7 billion, revenue in Europe, the Middle East and Africa declined 2% to $9.0 billion, and revenue in Asia Pacific grew 7% to $3.9 billion. When adjusted for the effects of currency, revenue in Europe, the Middle East and Africa grew 6%, and revenue in Asia Pacific grew 10%.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 10% year-over-year to $7.0 billion, with unit shipments up 16%. On a year-over-year basis, desktop revenue increased 1% and notebook revenue grew 27%. Commercial client revenue grew 3% year-over-year, while Consumer client revenue increased 24%. Operating profit was $248 million, or 3.6% of revenue, up from a profit of $147 million, or 2.3% of revenue, in the prior year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue grew 5% year-over-year to $6.7 billion. On a year-over-year basis, supplies revenue grew 10%, commercial hardware revenue grew 4% and consumer hardware revenue declined 8%. Momentum in key growth initiatives continued, with color laser printer shipments and printer-based MFP shipments up 38% and 44% year-over-year, respectively. HP Indigo Press printed page volume grew 42% over the prior year period. Operating profit was $1.0 billion, or 15.5% of revenue, up from a profit of $814 million, or 12.7% of revenue, in the prior year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $4.3 billion, up 2% over the prior year period. On a year-over-year basis, industry-standard server revenue increased 4%, with blade revenue growth of 60%. Networked storage revenue grew 8%, led by continued strength in external arrays, where high-end XP revenue grew 8% and revenue in the mid-range EVA line increased 46%. Business critical systems revenue declined 7%, as Integrity systems growth of 93% was offset by declines in PA-RISC and Alpha. Operating profit was $322 million, or 7.5% of revenue, up from a profit of $180 million, or 4.3% of revenue, in the prior year period.
HP Services
HP Services (HPS) revenue declined 2% year-over-year to $3.9 billion. On a year-over-year basis, revenue in Technology Services declined 4%, Consulting and Integration revenue declined 2% and Managed Services revenue grew 2%. Excluding the effects of currency, HPS revenue grew 2% year-over-year. Operating profit was $345 million, or 8.9% of revenue, up from a profit of $292 million, or 7.3% of revenue, in the prior year period.
Software
Software revenue was $330 million, an increase of 20% year-over-year, with revenue in HP OpenView and HP OpenCall increasing 25% and 11%, respectively. HP OpenView growth was led by solid momentum associated with the recently completed acquisition of Peregrine Systems, Inc., which added key asset and service management components to the HP OpenView portfolio. Operating profit was $3 million, or 0.9% of revenue, compared with a loss of $2 million in the prior year period.
Financial Services
HP Financial Services (HPFS) reported revenue of $518 million, a decrease of 5% year-over-year. Finance volume decreased 14% over the prior year period, and net portfolio assets grew 1%. Operating profit was $39 million, or 7.5% of revenue, down from a profit of $58 million, or 10.7% of revenue, in the prior year period.
Asset management
Inventory ended the quarter at $6.8 billion, up $37 million sequentially and $304 million year-over-year. Accounts receivable increased $1.1 billion sequentially and $517 million over the prior year period to $9.8 billion. HP's dividend payment of $0.08 per share in the second quarter resulted in cash usage of $226 million. HP utilized $1.3 billion of cash during the second quarter to repurchase approximately 40 million shares of common stock. In addition, HP received approximately 7 million shares of common stock under the company's prepaid variable share purchase program. HP exited the quarter with $14.1 billion in gross cash, which includes cash and cash equivalents of $14.0 billion, short-term investments of $12 million, and certain long-term investments of $18 million.
Outlook
HP estimates Q3 FY06 revenue will be approximately $21.750 billion, and full year FY06 revenue will be approximately $91.0 billion, in line with current analyst consensus expectations.
Third quarter GAAP diluted EPS is expected to be in the range of $0.41 to $0.44, and non-GAAP diluted EPS is expected to be in the range of $0.45 to $0.48. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.04 per share, related primarily to the amortization of purchased intangible assets. Third quarter GAAP and non-GAAP diluted EPS estimates include $0.03 of stock-based compensation expense.
Full year GAAP diluted EPS expected to be in the range of $1.87 to $1.91, and full year FY06 non-GAAP diluted EPS is expected to be in the range of $2.04 to $2.08. Full year FY06 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.17 per share, related primarily to the amortization of purchased intangible assets. Full year FY06 non-GAAP and GAAP diluted EPS estimates include $0.13 of stock-based compensation expense.
More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at http://www.hp.com/hpinfo/investor/.
HP's Q2 FY06 earnings conference call is accessible via an audio webcast at http://www.hp.com/hpinfo/investor/financials/quarters/2006/q2webcast.html.